Everyone loves a good success story, especially when it comes to entrepreneurship.
You know how the narrative usually goes: Man overcomes hardship to open a bakery and business is booming, or woman has groundbreaking, so-simple-why-didn’t-I-think-of-that idea and is now a multi-millionaire.
Success in entrepreneurship is great. So great, in fact, we write about it all of the time. But realistically speaking, not every business idea is a home run, and things don’t always go according to plan.
You’ve probably heard snippets of the statistics concerning small business ownership at least once or twice: Only about 20% of small businesses make it past their first year, and just 50% make it past five.
So, yeah, the odds might not be ever in your favor when it comes to opening a business. But that’s what makes entrepreneurship so great — that despite the less-than-stellar odds, people are taking this leap of faith each and every day.
Seeing how commonplace failure is in entrepreneurship, it deserves to be acknowledged just as much as the successes.
We spoke with three entrepreneurs who were willing to look back on past business failures and share what it’s like finding yourself on the not-so-pretty side of entrepreneurship.
Partnership Gone Astray
The entrepreneurial bug bit Veronica Kirin at a young age.
When she was 10, she was sewing beds for Beanie Babies and selling them door to door. In 2018, the serial entrepreneur has found herself involved in all types of businesses, many that she started on her own.
It only makes sense that she’s seen her fair share of failure along the way.
In 2014, Kirin and two partners founded a startup in the design industry called Fuse West Michigan — a passion project for Kirin that she was certain would benefit the community.
But thanks to a partnership gone south and a lack of precaution, the startup didn’t live to see its first anniversary.
“We were in the planning stages and… one of my co-founders just peaced out,” says Kirin.
When the three friends initially formed the LLC, they decided against a founders’ agreement — despite Kirin’s hesitation to move forward without one. She was still relatively new to formal entrepreneurship at this point and wasn’t sure how to push the topic, so she went along with it.
Ownership percentages were defined, but the division of labor and intellectual property weren’t. So when the one co-founder abruptly departed the company, operations were crippled.
They sat down with a lawyer and attempted mediation, but with little to no effect. A lack of documentation defining their roles plus a conflict of personalities resulted in what Kirin describes as a tug of war — and ultimately it just tore the whole company apart.
“Myself and the other business partner tried to limp along and keep it going,” she says. “We held on for a couple more months, then that was it.”
One silver lining for Kirin was that Fuse West Michigan wasn’t her only venture at the time. Another company she had previously founded was doing quite all right, so loss of income wasn’t her major concern when Fuse West Michigan dissolved.
She describes it as more of a loss of a dream than anything — one that took her a year to get over.
“It was a stab to the heart,” she says.
Selling What the Customer Doesn’t Want
When Sam Sternweiler looks back on the business he started in 2015, he’s able to pinpoint two grave mistakes.
One, charging ahead without doing the proper market research; and two, spending way too much money way too early.
Armed with a passion for jewelry and some experience selling his homemade designs on sites such as eBay and Etsy, Sternweiler decided he was done working through third-party sellers — it was time to open his own e-commerce store.
But this wasn’t just another website selling fine jewelry. Sternweiler was hoping to change the game with real-time, 3D customization software. That way, customers could pick out jewelry based on an interactive model rather than just basing it off of images.
Convinced that this idea would revolutionize the jewelry market, he moved forward with a custom web design and a software development team. After six months and thousands of dollars, he switched to a Shopify template for the web design and used a different software altogether.
“It was just frivolously spending money,” he says.
In June of 2016, he launched the finished product — called JEWELv — and waited for customers to flock to the innovative shopping experience.
“The response was abysmal,” he says. “We realized after nine months of development work, we had never asked our prospective customers what they wanted… and the result was a product they weren’t really excited about.”
On top of a design that no one asked for, it turned out that acquiring customers in an already saturated jewelry market was harder than anticipated — but they no longer had the cash to promote the product.
Sternweiler estimates that more than 80% of the budget was spent before they even had a product to sell. And when the “build it and they will come” method didn’t pan out, JEWELv had nowhere to go but down. It closed in March of 2017, less than a year after launch.
Sternweiler says that the closure was devastating not only because of the monetary loss, but because of the passion and time he dedicated to the company.
“Having to let it go — that was definitely the hardest part,” he says.
Read the Fine Print
When Mike Moyer was in college, he started a business selling T-shirts to fraternities and sororities. He kept it running through graduate school before ultimately selling the company for a profit.
He thinks his first venture into entrepreneurship did really well on “punk kid, college company terms,” but in 2004 he decided to wade into deeper waters with a much larger undertaking.
His idea was a software program that would help suppliers in the medical industry better market their products by working through client databases. Basically, suppliers could target product campaigns based on what the consumers were actually using.
He decided to launch in the veterinary space first — due to fewer privacy regulations — and had hundreds of vet offices on board, as well as a major distribution partner.
Moyer raised $1.7 million through fundraising and secured investors, but things got hairy when it came time to put everything in writing. Moyer says he felt rushed to sign a contract that laid out the financing, and it was full of “convoluted terms and clauses” that he couldn’t make heads or tails of.
“I told the investor ‘This seems like you have a loaded gun to my head, but you’re promising me you won’t pull the trigger,’” Moyer says. “But he assured me that the investors were behind me 100%… so I signed the documentation not understanding it fully.”
Within 24 hours, Moyer learned just how little the investors were actually behind him. When he signed the financing deal, it gave the investors the power to stop funding the company. But at the same time, they could maintain their equity share if the business reached a break-even point within eight months.
But in order to reach that point, Moyer would have to fund the company out of his own pocket — something he definitely didn’t have the money to do. He had to walk away from the venture, and the investors closed shop shortly after.
Moyer lost the majority of his savings, including all of the money he made from his first business and money he made through stock market investments. To make matters worse, he and his wife were new parents and had just bought a home.
“[We] kind of thought we’d be set for life,” he says. “It was a major issue.”
A Common Theme Among Entrepreneurs
Three different people, three different industries, three different ways to fail.
But one thing they all have in common? The attitude following their major setbacks.
Kirin, Sternweiler and Moyer all said variations of the same thing after telling their stories: Failing in entrepreneurship isn’t equivalent to being a failure; it’s just a part of the process. A painful part, but a necessary one.
They all look back on these events as older and wiser entrepreneurs, having learned a thing or two from their mistakes. And they’ve each put those lessons to use in their new ventures.
Kirin went on to open another business in 2016 — she’s now coaching other entrepreneurs. Some major topics she covers with clients are founders’ agreements and division of labor, thanks to her own experiences.
“I’m basically being the person I wish I had when I started my company,” she says.
Moyer followed a similar path, imparting his learned lessons on other hopeful entrepreneurs. He has taught entrepreneurship at the University of Chicago Booth School of Business and at Northwestern University. He has also authored eight books, three of which address equity splits in startups.
Sternweiler didn’t go on to open another business, but he stuck with e-commerce. He now works as a product manager and feels that his foray into business ownership in that space contributes to his success today.
“One failure shouldn’t define you as an entrepreneur — entrepreneurs fail all of the time,” says Sternweiler. “As long as you learn something from the process… and hopefully you don’t spend too much money on the way.”
Some Advice From Those Who’ve Been There Before
Whether you’re a seasoned entrepreneur or you’re just dipping your toe in the water, a little advice never hurts. Here are some of the biggest takeaways our entrepreneurs want to impart.
Moyer says that financing is one of the most critical things to consider when you start out. Basically, don’t let your excitement over an idea pull the wool over your eyes. Take the necessary steps to secure your financial well-being.
“If you start with a bad financing deal, you will not experience success the way that you want to,” he says.
Sternweiler thinks that envisioning an end goal is important so that you can at least attempt to avoid costly mistakes along the way.
“Start small and within your means,” he says. “Use the first few months as a testing period to see what you’re doing right, what you’re doing wrong and what the market is going to want.”
Kirin stresses the importance of proper documentation but also thinks that focusing on mental well-being is extremely important, especially if you’ve just experienced a failure or major setback.
“If you are in that kind of ‘Oh my god, what happened?’ phase,’… check in with self-care and self-talk,” she says. “And I don’t mean like going to get a mani-pedi.”
She describes that type of setback as an energy loss, so focusing your energy in a positive and productive way is imperative. Beating yourself up never did anyone any good.
Kirin says, “There’s almost always a lesson to learn.”
Kaitlyn Blount is a staff writer at Codetic.